Transcript Module 6 - Budget - Global Climate Change Alliance

Global Climate Change Alliance:
Intra-ACP Programme
Training Module
Mainstreaming Climate Change
Module 6
Mainstreaming climate change
in the budgetary process
Ms Isabelle Mamaty
Senior Expert
Climate Support Facility
An initiative of the ACP Group of States funded by the European Union
Mainstreaming climate change
in the budgetary process
 Learning objectives:
o To better understand the budget formulation process
o To learn about the best entry points for integrating climate
change into the budgetary process at national level
o To provide a brief introduction of existing external sources of
finance
 Expected outcomes:
o Increased knowledge on potential entry points for
mainstreaming climate change into the national budget process
o Increased awareness on importance of ensuring that climate
change is included in the budget according to national
policy
2
Why mainstreaming climate change in the
budgetary process ?
3
Budget consolidation
Revenues
Expenditures
Debt
Domestic
Revenues
Salaries
Operational
External
Revenues
including
Subsidies
and Loan
Transfer
including
International
dotations
Investmentconsolidated budget
4
Why mainstreaming climate
change into budget process ?
Climate change is a cross cutting issue and will impact on all
sectors
any prevention measure in the national budget will have major
economic benefits while the cost of inaction may be very high and
set back national economies for many years or even decades
avoiding the costs associated with climate change impacts
liberates national budgets for other development priorities such as
education, health…
……However for that to happen there is a need to:
raise awareness of all the ministries on the importance of climate
change impacts
Inform all the ministries on how to define the costs of climate
change related measures to be submitted to the budget office
5
Why mainstreaming climate change
in the budgetary process? (2)
 Mainstreaming CC in the budgetary process allows to:
o ensure that adequate resources are allocated to high priority
mitigation and adaptation measures;
o
raise additional revenues from taxes, tariffs, and pollution
charges related to climate change response measures;
o ensure that the unintended effects of budgeted activities in
non-environmental sectors don’t exacerbate climate change
problems;
o
balance internal and external sources of funding for climaterelated activities
6
Examples of Climate-related
policies and measures
 increasing or introducing climate-based taxes and
charges (like a carbon tax or pollution charges);
 increasing climate-based subsidies (e.g. for investment
in renewable energy) and budget allocations for those
subsidies;
 removing or redesigning perverse taxes and subsidies
that exacerbate climate change;
 increasing budget allocations and tax rebates for
activities with favourable climate effects;
 stipulating climate-based limits or goals as budget
rules to govern resource allocation
7
Implications of climate-related policies and
measures for public revenue and
expenditure
8
Implications of climate change
integration on the revenue side
Carbon tax
/ Taxes on
highemission
activities
+
-
Taxes on
Foreign grants &
economic
other financial
activities related to
transfers related
climate adaptation R
to adaptation &
& mitigation
E
mitigation
measures
V
E
Reduced taxes on N
activities that U
shrink or fail to E
develop as a result S
of adaptation or
mitigation policies
9
Growth
effects from
increased
competitiveness
Revenues
Implications of climate change
integration on the expenditure side
Subsidies for
adaptation &
mitigationrelated
activities
+
-
Current expenditures
Public investment
in relation to
(capital expenditure)
adaptation &
in adaptation and/or
mitigation activities
&
R
mitigation-related
specific infrastructure
E
infrastructure
maintenance
V
Reduced subsidies
for fuel
consumption and
other highemission activities
E
N
Reduced spending
on
U care,
health
E
infrastructure
S etc. as a
replacement
result of successful
adaptation measures
10
Expenditures
Linking the budget to policy
objectives and expected results
11
Key stages in the budget
preparation
Formulation
Macro-economic basis
Budget policy outline
Preparation of revenue and expenditure
targets
Submission of sector plans within those
ceilings
Adoption
By Parliament
Execution
By sector Ministries
Control, audits
Auditor general or similar agencies
12
Linking spending to policy and
results, with a medium-term outlook
National objectives and strategies
Medium-term
sector plans
Medium-term budget perspective
or expenditure framework
Annual budget
Implementation & service delivery
Performance monitoring
13
The medium-term expenditure
framework (MTEF)
 A forward-looking budgetary planning tool
covering a 3 to 5-year period
o systematically links strategic objectives (national/sectoral)
and related outputs/outcomes with actions required to
achieve them, corresponding expenditures and resources
o supports the prioritisation of expenditures and the
predictability of resources
o facilitates performance monitoring
 Can be established at the national level (intersectoral allocations) as well as the sectoral level
(intra-sectoral allocations)
14
In practice
 MTEFs are rather sophisticated tools, and
few countries have full-fledged MTEFs
 The preparation of medium-term projections of
national and/or sector expenditures is a good
starting point
 The uncertainties associated with projections
and forecasts should be recognised
What is the practice in your respective
countries?
15
Entry points for climate change
mainstreaming
16
Guiding questions for engaging
in the budgetary process
 Are budget planning and expenditures being directed toward
the appropriate priorities in view of adaptation and mitigation?*
 Do recent changes in budget allocations and expenditures provide
evidence of increased attention to adaptation to climate variability,
disaster preparedness, low-emission development options?
 Do public investment decisions consider geographical distribution
of climate risks and vulnerabilities?**
 How can the revenue-generating, budget planning and allocation,
and expenditure management systems be improved and/or
revised to enhance the contribution of relevant economic sectors
to adaptation, climate-resilient and low-emission development
while supporting poverty reduction?
Source: UNDP-UNEP (2011) & World Bank (2008)
17
Climate change at the resource
allocation stage
 The mainstreaming of climate change requires:
o reallocating funding to more vulnerable and/or priority
sectors and regions
o providing funding for adaptation- and/or mitigationspecific plans or activities
o adding climate change considerations to the criteria for
screening and selecting projects and investments
o making room for ‘cross-sectoral’ activities (e.g. DRR)
 This process typically involves a mix of topdown and bottom-up processes
18
Source: OECD (2009a)
Key stages in budget preparation
and related entry points (1)
Key stages
1. Determination of
macroeconomic outlook
Impacts of CC on economic
activity & growth
Key actors
Impacts of CC
Min. of Finance/Planning,
adaptation/mitigation on
statistical office,economic
centralactivity
bank & growth
2. Multi-year strategic planning:
medium-term fiscal strategy,
medium-term expenditure
framework
Cabinet,Extra
Min.costs
of of
Finance
adaptation /
3. Determination of next year’s:
-expected revenues
-acceptable level of deficit
-global level of expenditures
Min. of Finance (Budget Dept,
Macroeconomic
Dept),
Extra revenues
/ cost Cabinet
savings
mitigation measures
Extra resources
required / pledged
resulting from
adaptation/mitigation
4. Pre-allocation of expenditures
Cabinet,
Min. of Finance
Re-allocation
of funds in (Budget
among line ministries, according to Dept) support of adaptation/
mitigation objectives
policy priorities
Key stages in budget preparation
and related entry points (2)
Key stages
Key actors
Instructions on costing
5. Preparation/Circulation of budget Min. of Finance
(Budget Dept)policies &
adaptation/mitigation
circular & expenditure ceilings
measures
6. Costing of sectoral policies,
submission of bids
7. Review of sectoral bids, testing
of cost estimates, finalisation of
budget estimates
8. Negotiations, followed by
endorsement of budget
9. Preparation of appropriation bill
and budgetary documents
10. Submission of budget to
Parliament – Discussion & adoption
Costing & integration of adaptation/mitigation
All ministries
& government
policies
& measures
agencies
Use (Budget
of climate risk
Min. of Finance
Dept),
screening procedures
Cabinet
Prioritisation of adaptation/mitigation
Min. of Finance,
policies other
& measures
Ministries/agencies, Cabinet
Min. of Finance (Budget Dept)
Discussion of adaptation/mitigation
Min. of Finance,
Parliament
policies
& measures
Keeping track of climaterelated expenditures
 During budget preparation, implementation,
monitoring and reporting, ‘keep track’ of main
climate-related public expenditures
o Adapt the budget classification
o ‘Flag’ incremental climate-related expenditures embedded
in ‘non-climate’ programmes
 This is important for:
o monitoring the implementation of climate-related measures
in national and sector strategies
o reporting to the UNFCCC (national communications)
o securing eligibility for funding from specific climate
adaptation/mitigation funds
21
Monitoring climate-related
finance: climate markers
 Statistical codes developed by the OECD
(DAC) to monitor the amount of aid
resources targeted at adaptation and
mitigation
 Could be adapted for application to the
national budgets of OECD and non-OECD
countries
22
Source: OECD-DAC (2011)
Climate markers: eligibility
criteria – Adaptation
 An objective of adaptation to CC is
explicitly mentioned in the intervention
documentation; and
 The intervention contains specific
measures targeting the following definition:
Adaptation intends to reduce the vulnerability of human or natural systems to
the impacts of climate change and climate-related risks, by maintaining or
increasing adaptive capacity and resilience. This encompasses a range of
activities from information and knowledge generation, to capacity
development, planning and the implementation of climate change adaptation
actions.
Climate markers: eligibility
criteria – Mitigation
 The intervention contributes to:
o the mitigation of climate change by limiting anthropogenic
emissions of GHGs, including gases regulated by the
Montreal Protocol; or
o the protection and/or enhancement of GHG sinks and
reservoirs; or
o the integration of climate change concerns with the
recipient countries’ development objectives through
institution building, capacity development, strengthening
the regulatory and policy framework, or research; or
o developing countries’ efforts to meet their obligations
under the Convention.
24
Climate markers:
decision tree
Do any of the intervention’s stated objectives match “criteria for eligibility” of
Rio Markers?
Yes
Would the activity have been undertaken
without this objective?
No
Yes
No
2
1
0
CC = principal
objective
CC = significant
objective
CC
not targeted
25
Public expenditure reviews (PERs)
26
Public expenditure
reviews (PERs)
 A tool for analysing how budget resources are
planned, allocated and actually spent across
competing claims, objectives and priorities
 PERs can be used as a tool for supporting the
mainstreaming of climate change
o Track adaptation- and mitigation-related
expenditures
o But also, importantly: focus on public expenditure’s
overall contribution to climate-resilient, low-emission
development outcomes
27
Entry points for mainstreaming
climate-related aspects in a PER
Aspect
Issues to consider
Budget planning
process
Role of climate-related considerations in allocation
decisions
Expenditure trends
and categories
Actual spending on vs. allocations to:
* adaptation- and mitigation-friendly measures
* development programmes with a focus on climate risk
management, climate-resilient / low-emission development
Availability of recurrent funding vs. capital investment for
climate risk monitoring and management
Budget financing
Level of and trends in allocations to climate-relevant
sectors and agencies
Origin of such allocations (internal vs. external funding)
Possibility of increasing resources for climate-resilient
development
Sources: UNDP-UNEP (2011), World Bank (n.d.) GN4
28
Turning words into action
29
Discussion
 Questions and answers
 Mainstreaming climate change in the
budgetary process
 Using Public Expenditure Reviews
What are the opportunities to
mainstream climate change in the
budgetary process in your sector or at
your level and what are the
institutional and capacity needs in your
organisation to do so?
30
Presentation of case
studies
 Presentation of case studies:
identification of best practices of
mainstreaming climate change into
national budget
31
Learning process exercise:
Working group
 Exercise: Examination of a real world
budget statement and analysis of the extent
to which climate change is mainstreamed in
relation to national policy
32
Securing additional financial resources:
External resources and public-private
linkages
33
Why additional financial
resources ?
 Climate finance can play a crucial role in assisting developing
countries in facing climate change impacts and making the
transition to low carbon economies
 The estimates of climate change financing needs of developing
countries are as follow *:
o mitigation : $500 billion to 1100 billion/year (UNFCC, 2009; World
Bank report 2010; UNDESA (WESS, 2010)
o Adaptation : 100$ billion to $ 450 billion/year (UNFCC 2007;
World Bank 2010; Parry et al. (2009)
 Copenhagen Accord (2009) includes** :
 Short term finance of $ 30 billion equally allocated to mitigation and
adaptation for 2010-2012 (Fast start)
 Commitment by developed countries of up to $100 billion for 2013-2020 to
address developing countries needs
 Set up of a Green Climate Fund to help mobilize the committed funding
34
Mobilisation of external
financial resources
 In order to mobilize the existing resources, governments
should:
o Become familiar with all sources of climate change related funds
and set resource mobilization targets for the most promising funds;
o Conduct (or request) workshops/seminars on the new sources of
funds and the application processes for different ministries;
o Consider locating the focal points for external sources of climate
funds (such as GEF) in the Ministry of Finance or Planning rather
than in a Ministry of Environment;
o Issue detailed information to sector ministries on the available
funding sources, including accessibility conditions *; and
o Ensure that external funds are fully incorporated into national
planning processes and not processed as standalone projects.
35
Main sources of external
financing (1)
Source of funding
Activities supported
Development cooperation programmes
Adaptation and mitigation with a focus on
development
Least Developed Countries Fund
Preparation and implementation of NAPAs
Special Climate Change Fund
Adaptation (priority objective), technology transfers,
mitigation in high-potential sectors
GEF Trust Fund’s climate change focal area Mitigation projects, adaptation demonstration
projects and ‘enabling activities’
Adaptation Fund
Projects and programmes that reduce the
vulnerability of communities and sectors to CC
Green Climate Fund
(operations not yet started)
Channel for future multilateral funding for
adaptation and mitigation
Clean Technology Fund
Demonstration, deployment and transfer of lowemission technologies
Strategic Climate Fund (SCF) - Pilot
Program for Climate Resilience
Climate risk and resilience mainstreaming in
development planning
Main sources of external
financing (2)
Source of funding
Activities supported
SCF- Forest Investment Program
REDD- related activities, sustainable forest
management
SCF - Program for Scaling Up Renewable
Energy in Low-Income Countries
Deployment of renewable energy sources
REDD+ (various streams of funding incl.
UN-REDD, which promotes the
mainstreaming of REDD strategies in
national development)
Preparation, pilot implementation and deployment
of national strategies for reducing emissions from
deforestation/forest degradation
Prototype Carbon Fund
Pioneering approaches to mitigation that contribute
to sustainable development
BioCarbon Fund
Carbon sequestration projects in forests and agroecosystems
37
Main sources of external
financing (3)
Source of funding
Activities supported
Forest Carbon Partnership Facility
Preparation of national REDD strategies, pilot
financial transfers based on verified emission
reductions from REDD
Carbon Partnership Facility
Long-term, post-2012 mitigation projects
Global Energy Efficiency and Renewable
Energy Fund
Energy efficiency and renewable energy projects
Global Climate Change Alliance
Mainstreaming of CC in poverty reduction and
national development strategies
Adaptation, DRR, participation in REDD/CDM
MDG Achievement Fund, ‘environment
and climate change’ thematic area
Mainstreaming of environmental issues in national
and sub-national policies, planning and investment
frameworks
Clean Development Mechanism
Mitigation projects in developing countries
Voluntary carbon markets
Mitigation projects
Budget support
 The transfer of financial resources of an
external financing agency to the National Treasury
 Provides extra resources for the national budget
o either grants (e.g. EC) or loans (e.g. World Bank)
 National procedures apply to the commitment and
disbursement of funds
o implementation via the national Public Financial
Management system => reduced transaction costs,
increased ownership
39
Overview of EC budget
support modalities (1)
 Budget support is provided in the form of:
o good governance and development contracts-> support
for core government systems and broader reforms
o sector reform contracts-> support for sector policies and
reforms
o state building contracts-> support transition processes
towards development and democratic governance
 Joint budget support operations are conducted with
other donors where such initiatives exist
 Usually 3-4 year programmes with annual
disbursements
40
Overview of EC budget
support modalities (2)
 General eligibility conditions:
1) A well-defined national or sectoral development or
reform policy and strategy to which the budget
transfer will contribute
2) Stability-oriented macroeconomic framework
3) Credible and relevant programme to public
financial management
4) Transparency and oversight of the budget
41
Overview of EC budget
support modalities (3)
 Annual disbursements include two types of
‘tranches’
o fixed tranche: paid in full as long as eligibility conditions
are maintained
 provides an element of predictability
o variable tranche: paid in full or in part based on actual
performance against an agreed set of criteria and
targets (as long as eligibility conditions are maintained)
 criteria/targets in principle taken from the PAF
associated with the supported policy or strategy
 provides a results-oriented performance incentive
42
National climate funds
 Several countries have now established a
‘national climate fund’ (trust fund) to:
o channel and manage external funding related to CC
o leverage existing funds and initiatives (incl. those financed
with national resources)
o support the mainstreaming of climate-related programmes
and projects into national development strategies
 Expected benefits:
o Alignment of external funding with national priorities
o Building of national capacities and institutions
o Scaling up of the response to climate change
43
Private-public Linkages
Many climate change responses, especially in relation to
mitigation will involve the private sector (exp. Energy
efficiency), therefore government should:
 Involve private sector representatives to the climate change task-force
and/or other national committees/councils;
 Involve the private sector in setting amended national standards and
codes to respond to the challenge of climate change;
 Assist the private sector to take up climate change responses by
providing incentive schemes, and by initiating public-private partnerships
 Identify and seek the support of private enterprise in national climate
change initiatives and in particular, the Clean Development Mechanism.
44
Turning words into action
45
Discussion
 Accessing external resources to support
climate change mainstreaming
 Setting-up public-private partnerships
 Using budget support
What are the opportunities for accessing external resources to
support climate change mainstreaming in your sector? Have you
being able to set up public-private partnerships? Have you being
able to use budget support? and what are the institutional and
capacity needs in your organisation to do so?
46
Recap – Key messages
 Climate-related policies and measures can
impact the national budget in multiple ways
 There are entry points for mainstreaming climate change
at practically all stages of the budgetary process –
including at the stage of ex post evaluation (PERs)
 It is recommended to set up systems to keep track of
adaptation- and mitigation-related expenditures
 Multiple sources of funding exist to support adaptation
and mitigation – focus on eligibility and objectives
 Where conditions are met, budget support is a suitable
modality for supporting CC mainstreaming efforts
47
Key references

Mickwitz et al. (2009) climate policy integration coherence and governance, PEER Report N°2

OECD (2009a) Integrating Climate Change Adaptation into Development Co-operation: Policy
guidance. OECD Publishing, Paris. [Read-only, browse-it edition] Available from:
http://browse.oecdbookshop.org/oecd/pdfs/browseit/4309171E.PDF

OECD-DAC (2011) Handbook on the OECD-DAC Climate Markers. Organisation for Economic
Cooperation and Development, Paris. Available from:
http://www.oecd.org/dataoecd/56/18/48785310.pdf
 Petkova N. (2009) Integrating Public Environmental Expenditure within Multi-year Budgetary
Frameworks. Available from: http://www.oecd.org/dataoecd/60/6/42898831.pdf
OECD Environment Working Papers no. 7. OECD Publishing, Paris
 UNDP-UNEP (2011) Mainstreaming Adaptation to Climate Change into Development Planning: A
Guide for Practitioners. UNDP-UNEP Poverty-Environment Initiative. Available from:
http://www.unpei.org/knowledge-resources/publications.html
 ODI (Oversees Development Institute), Implementing a Medium-Term Perspective to Budgeting in the
Context of National Poverty Reduction Strategies, Good Practice Guidance Note, ODI, London.
 World Bank (2009) The Costs to Developing Countries of Adapting to Climate Change: New Methods
and Estimates. The Global Report of the Economics of Adaptation to Climate Change Study,
Consultation Draft. World Bank, Washington DC.
useful websites:

Carbon Finance website of the World Bank: www.carbonfinance.org
 Climate Funds Update: http://www.climatefundsupdate.org/
• Thank you
• Contact: Dr. Pendo MARO, ACP Secretariat
[email protected] or +32 495 281 494
www.gcca.eu/intra-acp
49